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Cybersecurity – new regulations, new tasks

News, Commercial Law / / , ,

On January 1 this year, Act LXIX of 2024 on cybersecurity in Hungary (the “Cybersecurity Act“) came into force, which was adopted in accordance with Directive (EU) 2022/2555 of the European Parliament and of the Council of 14 December 2022 on measures for a high common level of cybersecurity across the Union, amending Regulation (EU) No 910/2014 and Directive (EU) 2018/1972, and repealing Directive (EU) 2016/1148 (“NIS2 Directive”) which aims to mitigate threats to electronic information systems due to threats to the information society and to ensure the continuity of services in key sectors. The Cybersecurity Act and related legislation impose strict requirements and provide for serious legal consequences in the event of non-compliance.

As we support many companies in preparing for compliance with the NIS2 Directive and the Cybersecurity Act, the purpose of this article is to draw the attention of all potentially affected companies to the provisions of the Cybersecurity Act that will become relevant in the near future, namely the obligations and deadlines related to contracting and conducting cybersecurity audits.

Scope of affected organizations

The Cybersecurity Act broadly defines the organizations that are required to monitor the security of their electronic systems and audit them. Private sector companies that reach a certain size and engage in activities classified as high-risk or risky fall into this category, as follows:

  • In terms of size, the companies concerned are those that qualify as medium-sized enterprises or exceed the thresholds set for medium-sized enterprises, i.e. those with a total workforce of more than 50 and an annual net turnover or balance sheet total exceeding the equivalent of EUR 10 million in Hungarian forints.
  • The condition relating to the scope of activity is that the enterprises operate in (highly) risky sectors, such as healthcare, telecommunications services, digital infrastructure (cloud service providers, data center service providers), food production, processing and distribution, computers, electronics, optical product manufacturing, or machinery and equipment manufacturing.

If it is unclear whether the obligations under the regulation apply to a given company, it is recommended to clarify this as soon as possible by reviewing the legislation.

Cybersecurity obligations

  • Audit contract:

The current obligation of the enterprises concerned is to enter into a contract with an independent economic operator authorized to perform cybersecurity audits registered by the Supervisory Authority for Regulatory Affairs of Hungary (SZTFH) in order to verify the cybersecurity of their electronic systems. The SZTFH is already sending out notifications to potentially affected parties, requiring them to provide proof of the conclusion of such a contract by September 15, 2025. Failure to comply with this obligation may result in a fine of between HUF 1 million and HUF 15 million being imposed on the company.

  • Cybersecurity audit:

Following the conclusion of the contract with the auditor, a cybersecurity audit must be carried out by June 30, 2026, during which the security classification of electronic information systems and the adequacy of protective measures according to the security classification will be checked. Failure to perform the audit may result in severe penalties, including fines of up to 2% of the previous year’s turnover, but at least HUF 1 million and up to HUF 150 million.

A cybersecurity audit may take longer depending on the size of the business and the technological and organizational complexity of its activities. For this reason, it is advisable to plan the timing and schedule of the review in advance so that the process not only serves the purpose of compliance, but also actually identifies areas where further action or deficiencies may exist. Examples include reviewing data protection compliance, updating information security policies, or fine-tuning risk management procedures.

The importance of compliance

Due to stricter cybersecurity regulations and the risk of high fines, compliance is not only a legal obligation but also a key business interest. Available benefits:

  • Reduced financial and reputational risk;
  • Strengthened cybersecurity protection and digital stability for the business;
  • With the right contract, the content, schedule, and definition of tasks and responsibilities of the audit become predictable;
  • At the same time, data protection aspects can be reviewed and, if necessary, data protection impact assessment documents can be revised, thus fulfilling the NAIH’s expectation of compliance with the principle of accountability.

Image source: Brian Penny, pixabay.com

Clarification on trusts

News, Commercial legal advice / / ,

The institution of trusts came into force more than 10 years ago, and the new Civil Code has designated them as a type of contract and introduced a separate law with detailed rules.

Fiduciary trusts are a responsible but also a great option for natural persons with large private assets, as they can offer tax advantages, and solve management, succession, matrimonial property, private property protection, succession challenges or even provide as a preparation for a sale. A well-constructed contract can plan the fate of the assets for years, or even decades, with regular review. We find that our clients who opt for this structure are at first reluctant, but then increasingly brave, to address issues during the provisions that affect their fundamental life situations:

  • How can I ensure the successful future of a company built up over many years of work, and the predictable future of employees?
  • What role can individual family members play in the fate of the company?
  • Do they want to be involved in management at all and is there a Plan B if I cannot hand over the running of the company to the person I care most about?
  • What happens to all the assets I have built up from my own resources after my death?
  • How can I ensure that my family members can live their own lives in peace and prosperity after I am no longer able to help them?

To consult on these issues is a matter of great trust for us, and we approach such trust with the same care and respect.

At the same time, however, we often come across offers and opinions on the market which identify the tax advantage of asset management – which is otherwise welcome – as the most important objective and which make everything subject to this – but, in our view, the goal does not justify the means in this case either.

The recent joint statement of the Tax and Information Department of the Tax Authority and of the Ministry of National Economy clarifies a position we have previously held under the Civil Code, the Accounting Act and the Income Tax Act, that dividend claims to be placed in trust (which can be done at the time of the conclusion of the trust deed or at a later date), does not alter the liability to pay public tax under the public law, i.e. if the dividend has already been declared in the concerned tax year, it is taxable as a dividend regardless of whether it is paid or placed in trust.

The fact that the Ministry-Tax Authority have published their position paper and that the audit of trusts is a priority in the 2025 audit plan means three things in our view:

  • those who have not assigned the assets in the above manner, based on the combined interpretation of the Civil Code, the Accounting Act and the Tax Act, are expected to be subject to self-audits;
  • those who have not paid due attention to the “substance principle” in the process of disposing of their assets are recommended to review their contracts and adapt the relevant provisions;
  • those who plan to set up a trust this year should take into account that there are different tax consequences for dividends already declared and amounts placed in the profit and loss reserve.

We believe that if we know the rules of the game well, it is possible to win by playing the game cleanly, even collectively.

Image source: Leeloothefirst, Pexels.com

Sustainability reporting obligations

Company groups, Corporate law, Medium-sized companies, News, Start-ups, Trade affairs / / ,

 

COMPANIES COULD FACE NEW SUSTAINABILITY REPORTING OBLIGATIONS

Introduction

After a long period of time based on the warning signs of the environment, we may have come to realize at an individual level that the existence of the natural conditions around us is not self-evident. It is clear that rampant exploitation has serious natural consequences, and that our daily lives cannot be continued in their present form for long, as they are not sustainable. There are many national and international efforts to protect the environment, as well as awareness and willingness to act at an individual level is growing. Of course, enterprises are not to be left out of this list, as their importance is demonstrated by the fact that the revenue generated by some group of companies can rival the GDP of certain countries.

There is no requirement for companies to report on sustainability in a similar way to accounting reporting. Nevertheless, we see that more and more companies have some form of corporate social responsibility. One example is the widespread use of CSR (Corporate Social Responsibility). In order to make this commitment conscious, transparent and accountable, the European Commission presented a proposal in April 2021 (hereinafter: “Proposal”) to amend corporate sustainability reporting.

New Proposal

The Proposal seeks to reform the Non-Financial Reporting Directive (NFRD), which amends the Accounting Directive. The main objective is to require companies to report in a similar way to accounting reports. The Proposal would change the current system of voluntary commitments and obligations under the NFRD, which only affects a limited number of companies, as follows.

According to the plan the reporting obligations would affect approximately 30% more persons concerned and the known text also specifies in more detail the subject matter and the method of providing information.

The report should be presented in a standardized electronic format, ensuring quick and easy access, same file format, comparability and paperlessness.

One of the most important innovations of the Proposal is that it requires reporting according to uniform standards. This is of particular importance as it will allow companies’ reports to be retrieved chronologically and to be comparable with those of their competitors.

Another innovation is that the content of the report will also be subject to appropriate auditing to ensure its independent and objective validation.

Summary

Although the Proposal is still pending adoption and would only be phased in over a number of years, its practical implementation is of paramount importance. It gives cause for optimism that it will take corporate social responsibility for our environment to a new level. It will undoubtedly impose a significant additional burden on those concerned in the beginning, however it is in the interest of all of us in the long term.

Sustainability expectations will be transparent for companies that they need to meet. Another benefit is that companies will be able to benchmark themselves against their competitors on the basis of harmonized reporting standards. And those that have already committed to sustainability will be able to reduce the unfair advantage of their exploitative peers and even gain a competitive advantage. All of this suggests that there are many benefits to be gained from fulfilling reporting requirements, in addition to compliance, so it is worth making a gradual and conscious effort to prepare starting from now.

Should you have any questions regarding the above, feel free to contact us.

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New COVID-19 restrictions in Hungary: consequences for employers

Company groups, Employment, labour law, Medium-sized companies, News, Start-ups, Trade affairs / / , , , , ,

The restrictions (of Gov. Decree 484/2020 (XI. 10.)) apply as of 11 November 2020 for the whole of Hungary, effective until 11 December 2020. These restrictions may be prolonged if necessary.
The current rules concerning wearing masks, social distancing and border crossing remain in effect, while wearing masks is now obligatory in public spaces designated by the local councils in cities exceeding 10,000 inhabitants.

I. Curfew between 20:00 and 5:00 with an exemption regarding going to work

During the curfew, only people going from their homes (place of residence) to work and back home from work can be in public spaces. A sample of the certificate to be issued by the employers can be found on the Government website: https://kormany.hu/hirek/kijarasi-tilalomrol-szolo-igazolas

II. Rules regarding education

Nurseries, kindergartens and primary schools remain open for those under 14 years of age. Online education has been introduced from grade 9 in middle schools and colleges/universities, and dormitories are closed.

III. General ban on events

All events are banned. This also applies to all professional events held in person (conferences, workshops, etc.).

IV. Restrictions on trade and catering

Restaurants are closed and only takeaway and home delivery are allowed, however, factory canteens may remain open. Shops, stores and other services except for pharmacies and petrol stations must close at 19:00, after which only those working there may stay on site. Hotels may only accommodate guests arriving on business, economic or education purposes.

V. Sanctions

In the event of violation of the rules applicable to events or institutions, shops and facilities, the police may close the area, premises or institution (except for educational institutions) for a period of one day to one year and impose a fine of HUF 100,000 to HUF 1,000,000.

VI. Economic protection measures

In order to protect jobs, the Government has also introduced economic protection measures (Decree no. 485/2020. (XI. 10.)), as follows.

1. Tax allowance
For November 2020 employers operating in the scope of activity listed in the Decree shall not need to pay social contributions and vocational training contributions. Small entrepreneurs within the scope of activity listed in the Decree do not need to count personal payments to their small business tax base relating to employees who would have been dismissed due to the state of emergency, provided that these employees are not dismissed and receive their salaries.

2. Provision for hotels
The state will reimburse 80% of the price (net income) of bookings booked for within the next 30 days and received by the hotels registered in the National Tourism Data Providing Centre (Nemzeti Turisztikai Adatszolgáltató Központ) until 8 November 2020, provided that the hotel employees are not dismissed and receive their salaries.

3. Wage subsidies
50% of the wages for November 2020 of the employees of restaurants and leisure facilities listed in the Decree will be reimbursed by the state in the form of a subsidy, provided that the employees are not dismissed and receive their salaries.

The ‘actual main activity’ is the activity which generated the most revenue, which must be at least 30% of the revenue in the previous six months.

There are still many open questions regarding the implementation of the governmental measures described above, we shall provide information on possible further measures after they have been published.

Certain Tax and Corporate Deadline and Processes

Company groups, Corporate law, Medium-sized companies, News, Start-ups, Trade affairs / / , , , , ,

During the state of emergency and the implemented partial curfew, the continuous decision-making of companies could easily become impossible. In order to prevent this, as of 11 April 2020 different rules apply to the decision-making process of the obstructed companies, and the mandate term of certain company officers is also extended for this period.

By definition, the decision-making rules do not apply to companies not obstructed by the exceptional circumstances, for example in the case sole member companies.

During the emergency and until the 90th day after its end, the term of managing directors, board members (e.g. supervisory board members) and auditor may not be terminated as a result of expiration or resignation and these officers shall continue to carry out their duties during this time. This provision also applies to unhindered companies, but of course it is also possible to elect new officers during the state of emergency.

A new rule to be applied to all taxpayers is that the deadline for preparing, disclosing, depositing, publishing and submitting financial statements of the Accounting Act due after 22 April 2020 is extended until 30 September 2020. In the case of the main types of tax (corporate and dividend tax, small business tax, local business tax, etc.), the tax assessment, declaration and payment obligations, as well as the tax advance assessment and declaration obligation to be fulfilled simultaneously with the annual tax returns can also be fulfilled by this extended deadline.

The right of exit and of entry following Brexit

Company groups, Medium-sized companies, News, Start-ups, Trade affairs / / , , , ,

The United Kingdom is set to leave the European Union on 31 January 2020. As the date draws ever so close, it is time to get acquainted with the rules to follow the departure of the country, most importantly the right of exit and of entry of union citizens.
Presently, union citizens can enter the UK with both their national identity cards or their passports and they do not need a visa to do so. Although 31 January 2020 is the day the UK shall officially leave the EU, it will be followed by a transition period, in which the rules of entry and exit shall remain unchanged.

According to the agreement between the UK and the EU, this transition period ends on 31 December 2020. The Joint Committee (comprising representatives of the EU and UK) may extend this transition period one time with an additional 1 or 2 years. As a result, the current system could hold out as late as 2022, but for now 31 December 2020 shall be deemed the relevant date.

Come 1 January 2021, – assuming no extension takes place – it will be entirely up to the British Parliament to determine the conditions of entry and exit into the country, specifically whether or not a passport and/ or visa is required.

About the changes of Government Decree 235 of 2009 (X.20.)

Medium-sized companies, News, Start-ups, Trade affairs / / , ,

In September 2017 Government Decree 250 of 2017. (IX.5.) entered into force, modifying certain healthcare, health insurance and pharmaceutics related government decrees.
On 7 September 2017 Government Decree 250 of 2017. (IX.5.) regarding the modification of certain healthcare, health insurance and pharmaceutics related government decrees entered into force, hereby modifying the Government Decree 235 of 2009. (X.20.) („Government Decree”) regarding the rules of the authorization procedure of medical research, clinical trials of products intended for human use, as well as the clinical trials of medical devices for human use, intended for clinical trials.

The changes of the Government Decree entering into force on 1 January 2018 concern the modification of the research and examination project. In the Hungarian text a slight difference can be found in the wording between the previous version and the one entering into force.

As a new provision entering into force on 1 February 2018 the Government Decree regulates the authorization of research involving ionizing radiation, the serves compliance with EU legal acts (Euratom).

Changes in the enviromental taxes

Company groups, Medium-sized companies, News, Start-ups, Trade affairs / /

The amendments of the Act No LXXXV. of 2011 on the environmental product tax. The regulation of the environmental product tax has been amended with effect from 2016. In this newsletter we would like to draw the attention to the main changes as follows:

1. Payment obligation of the environmental product tax:
a) Inventory purchase: According to the latest amendments to the act on the environmental product tax, the payment of the environmental product tax is mandatory not only in case of placing on the market or using for own purpose such products, but also in case of purchasing them for inventory, if the obliged person chooses the date of the purchasing for inventory as the date when his payment obligation arises, and he notifies the tax authority within 15 calendar days from the beginning of the activity or in case of continuous function until 31 of January of the current year, about his choice.

b) Packaging waste: The range of the obliged persons has also been extended. Thus, the person who puts the packaging material which has been produced abroad on the Hungarian market at the first time, and the first inland holder of the packaging waste formed from the unwrapped packaging, will be also obliged to pay the environmental product tax. The latter provision will be notable especially for logistic centres.

c) So-called triangle transactions: In accordance with the amendment, an obligation for paying environmental product tax does not arise in case of selling an environmental product to an inland purchaser, if after that the product will be delivered or dispatched abroad. The condition of this was previously that the seller himself had to deliver or dispatch the product.

2. Default surcharge:
The default surcharge has been implemented in the act as a new provision, which has to be calculated on the basis of the provisions of the act on the taxation in case of late payment or incomplete payment of the environmental product tax. Also, in case of undue use of budget supports a default surcharge has to be paid after the amount and period defined in the act.

3. Definitions:
The amendments affected the definitions of the act as well. Definitions such as packaging, commercial packaging, commercial packaging material, flat rate of product tax (among others) have been supplemented. Further, the range of the definitions has also been extended with the terms element of the packaging, component of the packaging, part of the packaging, packaging waste, building product,  motor vehicle, craft products, crafting activity, large industrial tool, deficit of the product tax, margin of the product tax, product tax debt, tariff heading.

4. Others:
Further to the above, the detailed rules regarding the flat rate of the product tax, the measure of the efficiency of waste management, product tax recovery and the product tax penalty have been clarified by the latest amendment.

Should you have any further questions in relation to the above, please feel free to contact us:

Dr. Marianna CSABAI and Dr. Réka SÜTŐ
H-1126 Budapest, Tartsay Vilmos u. 3.
Tel: + 36 1 488 7008
Fax: + 36 1 488 7009
E-mail:
 

 

On 1 November 2015 the new Hungarian Act CXLIII of 2015 on the Public Procurement has entered into force

Company groups, Medium-sized companies, News, Trade affairs / /

The new Hungarian Act CXLIII of 2015 on the Public Procurement has entered into force. The new Act implements and harmonise the national public procurement rules with EU public procurement directives. To all public procurement initiated after 1 November 2015 the new rules shall be applied.

 

Should you have any questions regarding the above, please feel free to contact us.
Dr. Marianna Csabai
H-1126 Budapest, Tartsay Vilmos u. 3.
Tel: + 36 1 488 7008
Fax: + 36 1 488 7009
E-mail:

 

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